Elasticity of Demand for Peru other developing nations, care, charging consumers

Question

Elasticity of Demand for Peru other developing nations, care, charging consumers a action of the cost of providing services such as is its to medical clinics. The price elasticity of demand or medical care is 0.67 for poor households but only 0.03 for wealthy households. Suppose the government reduced its subsidies for medical care, and the price to consumers increased by 10 percent. Predict the 2.1 (changes in the quantity of medical care demanded (for example, the number of visits to clinics) for poor households and wealthy households.

Explanation / Answer

Price elasticity of demand = % Change in quantity demanded / % Chage in prices

% change in quantity demanded = Price elasticity x % Change in prices

For Poor households: 0.67 x 10% = 6.7% (decrease)

For wealthy households: 0.03 x 10% = 0.3% (decrease).

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